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Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, made good on his pledge to keep lawmakers working all night on the financial regulatory reform bill.

By daybreak, Sen. Blanche Lincoln (D-Ark.) had agreed to looser restrictions on derivatives trading, paving the way for a compromise. The far-reaching legislation is the first major financial revamp in decades.

Democratic and Republican lawmakers worked into sunrise Friday morning -- under continuous CSpan coverage -- to reach a fractured agreement over financial regulatory reform. The so-called "Fin-Reg" bill hands President Barack Obama a solid political victory heading into the mid-term elections.

Deep into Friday morning, the joint Senate and House committee debated the minutiae of financial reform. Lawmakers argued about financial derivatives and the Volcker rule, two areas many economists have said need action in the wake of the financial crisis at the heart of the worst recession in decades.

At 3:30 a.m. Sen. Lincoln made a deal to soften the derivatives measure in her proposal to the riskiest firms, paving the way for a compromise. At 4:50 a.m. Rep. Frank moved to accept the Senate offer to combine the Senate and House bills. At 5 a.m. Sen Chris Dodd, the retiring Connecticut Democrat and Finance Committee leader (pictured), took charge of the hearing, arguing for a deal. At 5:06 a.m, the lawmakers received a standing ovation from their staffs. And that was it.

Late Night Legislators

Beginning at 9:45 a.m Thursday, members worked until daylight Friday morning to secure an agreement.

By 4 a.m. Friday morning, Chairman Frank announced that the committee had run out of printer paper and drew cheers from dozens of bleary-eyed staffers when he joked that in the future the committee would "tweet" legislative drafts.

Racing to beat the clock ahead of the Fourth of July recess next week, lawmakers worked furiously to reconcile two bills intended to rein in Wall Street excesses and regulatory lapses that contributed to the financial collapse at the heart of the recession.

Democrats insisted that action was necessary. "Doing nothing is a choice, but it's an unacceptable choice," said Sen. Dodd.

Middle of the Night Tactics?

Democrats favored a bill requiring the big financial firms to split off their banking business activity from their proprietary -- or personally enriching -- trading activities. The idea was to force the big national banks to focus on serving their customers, rather than trading on their own account.

Republicans accused Democrats of using middle-of-the-night-tactics to strong-arm through a measure they said bears little resemblance to the issues at hand. GOP members argued the law would deprive investors of much needed access to capital, because they won't be able to use derivative products to finance their operations or otherwise hedge their investments.

The compromise bill seeks to bolster consumer protections and increase transparency of the derivatives -- financial instruments based on underlying securities -- which have been blamed for the financial crisis. Toward the end, Republicans appeared powerless to stop the bill.

Wrangling Over Derivatives, Proprietary Trading

Sen. Lincoln, who's the Senate Agriculture Committee chairwoman, refused to back down on her insistence that derivatives reform be part of the package.

For over one year, Congress has been grappling with how to deal with derivatives, the financial instruments that have been blamed for much of the financial crisis. Derivatives are useful financial tools that allow market players to hedge their risks. But many in Congress -- and the public -- want lawmakers to crack down on the most sophisticated derivative instruments, which have been blamed for the financial tumult.

Lawmakers also vigorously debated the so-called Volcker Rule, proposed by former Federal Reserve Chairman Paul Volcker, which would separate the banking and proprietary trading functions of the major banks. Republicans showed little appetite for the Volcker Rule, which they say would hamstring the most profitable bank on Wall Street.

In one of the by-products of the agreement, Rep. Frank and Sen. Dodd said a provision outlawing Hollywood movie futures has been accepted.